A Double Standard on Trade

April 08, 2004

Christopher Farrell Whew, what a relief. The job market has finally turned a corner for the better. The 308,000 payroll gain for March came in at least twice consensus expectations. Still, worker anxiety isn't about to abate any time soon, no matter what how good the labor numbers get in the months ahead.

The job market has been abysmal the past few years, and the anxiety is palpable from East Coast skyscrapers to Heartland assembly lines. Strike up a conversation at a blue-collar neighborhood gathering or an after-hours white-collar office get-together, and you'll hear of close friends and respected colleagues restructured, downsized, or reengineered out of a job -- and still looking for a steady paycheck. One word captures today's rampant job insecurity: Outsourcing, or as consultants now prefer to call it, offshoring.

Little wonder both political parties are flirting with protectionist measures to address worker fears this election year. Yet erecting trade barriers to save jobs and restrain competition will only backfire on workers and consumers. The costs of trade and job barricades outweigh the benefits.

STRONGER SAFETY NET. What's more, the siren song of protectionist legislation allows policymakers to avoid addressing legitimate areas of concern. Some workers in an industry lose out whenever a new technology, a shift in the competitive environment, or a different model of corporate organization is introduced. In a recent speech, Federal Reserve Board Governor Ben Bernanke conservatively estimated that some 14 million jobs were lost annually for the past 10 years. Yet, those job losses were offset by creation of some 17 million jobs each year.

The workers losing their jobs are bearing the brunt of creative destruction -- and it's a horrible shock to bear. They and their families lose not only a paycheck but also health-care and pension benefits. Legislators need to take the initiative to reform these benefits so that when a worker is restructured out of a job, his or her family doesn't go without health insurance. And the job-retraining system in place is a poorly funded joke compared to the demand for a life-long learning system that improves worker education in a highly competitive global economy.

For all the pain that free trade can cause, the case for open markets remains compelling, perhaps more than ever in the era of offshoring, observes Birmingham-based software developer Courtney Pernell in an e-mail. He writes:

"I am a software developer who is about to be 'Bangalored.' Fine. am not going to pout about it.The media writes that we are in a 'global economy,' so deal with it. O.K., I will. But we should take the global economy one step further. If U.S. corporations can offshore their labor, allow U.S. consumers to offshore their consumption. For

example, if Pfizer (PFE) can offshore its IT staff to save money, then I should be able to purchase my drugs from Canada or Mexico to save money. I would like to see how IBM (IBM) would react if I could buy Thinkpad laptop from Singapore for $300.

"U.S. corporations are lobbying for the right to offshore, yet also lobby for protection for their products. I say make it fair. If you want free trade, you should feel the sting of free trade.... It's a global economy. Deal with it."

PHARMA FIGHT. Penny is right. It's disconcerting to watch high-price Washington lobbyists and trade groups preaching the benefits of free trade when it comes to labor but then fall strangely silent when it comes to product competition from overseas rivals.

As Penny notes, the giant pharmaceutical companies are a case in point. They offshore work. Yet Big Pharma is fighting initiatives by Minnesota Governor Tim Pawlenty and 18 of his gubernatorial peers to reimport prescription drugs from Canada, where they sell for 30% to 50% less than in America.

The same story holds in the rest of the country. A vast web of state rules and regulations limit competition, preventing consumers from getting the lowest price possible in the Internet Age for everything from wine to cars. Protectionist barriers at home and abroad hurt consumers.

Tear down those barriers, I say. The case for free trade remains strong, especially when it comes to competition for goods and services. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online